Chrysler and Fiat are in talks over a strategic partnership that could see the Italian automaker take a stake in the ailing US firm, a trade paper reported late on Monday.

Citing "people familiar with the matter", the paper said Chrysler could gain access to Fiat platforms, engines and transmissions allowing it to easily develop a new range of front-wheel-drive, low-emission vehicles.

Fiat previously had a partnership, now dissolved, with General Motors Europe for engines and transmissions. GME is still using the motors developed under the deal  in some current Opel/Vauxhall models.

The report said it was not yet clear how Fiat would be paid for Chrysler's access to its technology.

Any such deal could possibly be extended to include Fiat access to Chrysler's extensive North American dealer network and vehicle factories, reducing the automaker's market re-entry costs.

Fiat brand cars have not been sold in the US for about two decades. Alfa Romeo pulled out in the early 1990s and recently postponed its relaunch until 2011 because of difficulty establishing manufacture and distribution networks.

The paper noted that Fiat CEO Sergio Marchionne has said he would sell the Fiat 500 only if built locally to keep the price down. The retro-look little car would rival BMW's Mini imported from England.

While Alfas and Fiats were sold in North America through Chrysler, Jeep and Dodge dealers, Chrysler could gain access to Fiat's vast distribution network in Europe and Latin America, the report added.

Unlike GM and Ford, which can source small car designs from European units, Chrysler has had to explore alliances with other automakers. Small car deals with China's Chery fell through after over a year of negotiations but a model exchange programme with Nissan - small Japanese cars for rebadged US full-size trucks - is still under way.